Stock Market

Space tourism company Virgin Galactic (NYSE:SPCE) had its single best trading day on Monday, after its successful spaceflight test. Its oft-delayed test flight finally reached its pre-ordained altitude after its December attempt was cut short. As a result, analysts were quick to jump on Virgin’s bandwagon and have hiked its price targets by over 50%.  However, it all seems too rushed, as SPCE stock has a lot to prove before investors can get serious about it again.

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The company has been on a tear since it announced plans to list on the stock market. 12-month returns for the stock are at an incredible 71%. However, this performance has been wildly unjustified,  as it turns a blind eye to its weak fundamentals.  Virgin Galactic had been stuck in this delay mode for quite sometime before its successful launch this past weekend. However, it’s not out of the woods yet, as it has multiple tests left before it can fly its first paying customer in 2022. Therefore, with several hurdles left before its commercial launch, it’s tough to bet on SPCE stock at this point. Having said that, let’s dive a little deeper into a few of my concerns with the stock.

Finally Some Good News

Virgin Galactic finally broke the curse and successfully tested its  VSS Unity spacecraft, which was carried 44,000 feet in the air by the VMS Eve carrier aircraft. They had taken off from Spaceport America in New Mexico. The VSS Unity was carrying two pilots and was running experiments for NASA in the process. Moreover, its technical objectives involve updated flight systems and verifying EMI mitigations.

Regardless of its success, the test represents the first of four remaining before it begins commercial flights. The next test will be carrying four passengers to test out the spacecraft’s cabin, while the third will have the founder Sir Richard Brandson aboard.

Though the recent test is a step in the right direction, it’s tough to conclude whether the next three spaceflight tests will go according to plan. The company had previously forecasted that commercial service would begin in the second or third quarter of 2020. However, this year, it has pushed back that goal to early 2022 and aims to begin commercial service only when the tests and maintenance period is complete.

Competition

Most investors believe that Virgin Galactic stands alone in the promising space tourism industry. However, the reality is that Blue Origin and SpaceX are in a better position to dominate the sector. Blue Origin already has plans to launch humans to space by July this year. Its Shepard rocket can accommodate six passengers on an 11-minute trip 110km above the Earth’s surface.

The travel time is virtually the same as Virgin Galactic’s SpaceShip, and the ticket prices will be comparable as well. Moreover, passengers will be able to release their harnesses to get the full effect of the flight. SpaceX’s plans currently involve trips around the moon and the International Space Station on its Starship Rocket. However, it expects to larger itinerary down the road. The cost of each launch is currently at $2 million, which is considerably higher than its counterparts. However, it offers a more fulfilling experience with a more spacious interior and several more minutes in space with the higher costs.  In time, it would be able to bring the costs down significantly as it begins commercial flights.

Bottom Line On SPCE Stock

SPCE stock is blowing up again after its successful test flight. However, I feel that the market is getting ahead of itself and overlooking the array of risks associated with the stock. There are still a few crucial tests to go, and the company’s track record hasn’t been too great in meeting its targets. Moreover, the competition is heating up for the company, which is likely to chomp away at its market share. Therefore, I’m not quite sold on SPCE stock as yet.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines

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